2 Artificial Intelligence (AI) Stocks the U.S. Government Is Actively Backing in 2025

The U.S. government's increasing adoption of software and AI, driven by Defense Secretary Hegseth's vision, has significantly benefited Palantir Technologies, which has secured major contracts including a $795 million DoD extension (totaling $1.28 billion for MSS) and a reported $10 billion Army deal, solidifying its role as a key AI backbone. While BigBear.ai has also won government contracts, its deals are described as more niche and smaller in scale. Despite Palantir's strategic dominance in securing large-scale government AI initiatives, the article highlights its historically high valuation, suggesting investors consider waiting for a more attractive entry point.

Analysis

The U.S. government's strategic initiative to increase software adoption, particularly through the Software Acquisition Pathway (SWP), is creating substantial opportunities for data analytics providers. Palantir Technologies (PLTR) has emerged as a dominant beneficiary, securing significant, long-term federal contracts that solidify its role as a key government partner. Notable wins include a $795 million extension with the Department of Defense for its Maven Smart System, bringing the program's total value to $1.28 billion, and a reported 10-year Army deal potentially worth up to $10 billion. These large-scale agreements provide high revenue visibility and entrench Palantir across various government functions. In contrast, BigBear.ai (BBAI) is positioned as a more niche participant, winning smaller, more specialized contracts such as a $13.2 million deal with the Joint Chiefs of Staff. Despite Palantir's clear strategic and operational momentum, a significant headwind is its valuation; the stock is described as historically expensive, with a price-to-sales ratio that is the highest among its peers, leading to a cautious outlook on the current share price.

Key Decisions for Investors

• Investors should weigh Palantir's strong business execution and significant government contract pipeline against its historically high valuation, possibly waiting for a more attractive entry point before establishing or adding to positions.
• Consider BigBear.ai a more speculative investment, acknowledging its smaller, niche-focused contract wins and potential influence from retail investor sentiment rather than large-scale fundamental drivers.
• Closely monitor announcements related to the Defense Department's Software Acquisition Pathway (SWP), as continued or accelerated spending is a primary catalyst for growth in this sector.
• Given the valuation concerns for Palantir, it may be prudent to assess the relative value and growth profiles of other enterprise SaaS companies mentioned as context, such as Microsoft or ServiceNow.